tv Nightly Business Report PBS November 10, 2011 6:30pm-7:00pm PST
captioning sponsored by wpbt >> susie: investors breathe a sigh of relief as europe gets two new leaders. greece names a new prime minister and italy's silvio berlusconi prepares to step down. >> tom: but what could happen if economic problems overseas made their way here? the choices for american lawmakers and regulators. it's "nightly business report" for thursday, november 10. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. >> tom: good evening and thank you for joining us. u.s. markets rebounded today after greece named a new prime minister, lucas papademos. susie, he is an m.i.t.-educated economist who has promised to keep greece in the eurozone, >> susie: tom, meanwhile in italy, prime minister silvio berlusconi is expected to step down on monday. his resignation is contingent on the country's parliament approving austerity measures demanded by the european union. berlusconi's likely replacement- - mario monti, a respected economist and european commissioner.
now, u.s. investors welcomed news of that leadership change, as well as good news that yields on italian bonds fell below 7%, easing concerns that the country would need an emergency bail out. >> tom: here in the u.s., federal reserve chairman ben bernanke was talking about europe again, urging leaders to act forcefully to stem its rolling financial crisis. he added this warning, when it comes to the u.s.: "i don't think we would be able to escape the consequences of a blow-up in europe." what recourse would american lawmakers and regulators have if europe's debt troubles crossed the atlantic? darren gersh takes a look. >> reporter: the first u.s. policy option for a european meltdown is to know what is coming. that means regulators will keep a close eye on u.s. banks and their exposure to banks in europe that might be hurt by the crisis there. regulators could also roll out some of the same tools used in our financial crisis to keep cash flowing to banks and other important financial players hit by a temporary lack of funds.
another concern is the exposure of u.s. money market funds that invest in short-term securities issued by european banks. but the brookings institution's barry bosworth says investors shouldn't face the same kind of risk they did after the lehman bankruptcy sparked a run on some money market funds. >> i think both the money market funds and the regulators are very aware of those sorts of risks. and i think they are very busy trying to make sure they don't have excessive exposure to europe. i cannot believe that our regulators are that bad, given such a recent experience with these kinds of problems. >> reporter: the dodd-frank financial reform law gives the u.s. treasury new tools to manage the pain if trouble in europe brings down a big u.s. bank. but tracking risks caused by derivatives and other complicated financial products remains a challenge. >> we still do not have a complete netting of derivative exposures, the plusses and the
minuses on different sides of the bet. the united states has tried to move some of these on to organized exchanges. we have not been successful completely, and other countries have done less than we have. so, there are still a lot of unknown exposures out there. >> reporter: a european union economic forecaster now predicts growth of 0.5% next year, but also warned a deep and prolonged recession can't be ruled out. if europe's economy blows up and threatens to take down our economy, i.s.i. group's roberto perli expects the federal reserve will act aggressively. >> i think the most effective way they could do it is through another round of quantitative easing, probably in mortgage this time, in addition to treasuries. >> reporter: one tool that is not on the table: fiscal policy. analysts say the federal government clearly is not in a good position to launch another big stimulus program. darren gersh, "nightly business report," washington. >> susie: as we mentioned,
stocks bounced back from yesterday's steep drop. the dow added almost 113 points, the nasdaq rose 3.5 and the s&p 500 up ten. as for volume, 895 million shares moving here at the big board, 1.9 billion on the nasdaq. we saw new signs of life in the job market. the labor department says the number of new claims for jobless benefits last week dropped by 10,000 to 390,000, the fewest since april. and new lows for mortgage rates: the average rate on the 30-year fixed mortgage fell below 4% last week. it's only the second time rates have ever dipped that low. freddie mac says the 30-year rate loan slipped to 3.99%. but there's bad news for lots of people who already have mortgages. foreclosure filings, defaults and repossessions hit a seven- month high last month. the numbers are further evidence foreclosure activity is picking up. foreclosures slowed a year ago after concerns were raised about questionable handling of
paperwork. >> tom: still ahead, we talk to banking analyst mike mayo about the risks to the u.s. by financial firms in europe and as earnings season winds to a close, corporate america should be feeling pretty pleased. nearly all of the s&p 500 firms have reported third-quarter numbers. and in spite of a weak economy, results are running 15% ahead of last year and most companies are beating expectations. but as erika miller explains, there are growing concerns about the final quarter of the year. >> reporter: a.i.g. was one of the most hated financial institutions during the financial crisis. next quarter, it's likely to be a corporate hero. the insurance giant is expected to show the biggest jump in profits of all s&p 500 firms in the fourth quarter. but there's a catch. as analyst christine short explains, a year ago, a.i.g. was deep in the red. >> we're looking at an estimate
of about 65 cents per share for the fourth quarter. that may not sound like a lot, but if you compare it to the year-ago period, they were down $16.20 in the fourth quarter of 2010. >> reporter: it may surprise you that a.i.g., a single company, is expected to contribute half the earnings growth for the entire s&p 500 index next quarter. according to factset, wall street is forecasting a 15% rise in fourth quarter profits. take out a.i.g. and the gain would be only half as strong. that's not the only troubling news. in the latest batch of earnings reports, firms have been unusually negative in their outlooks. in fact, the ratio of positive guidance to negative guidance hasn't been this bad since the 2001 recession. that has wall street analysts slashing their forecasts, especially for basic materials firms. >> their growth rate in the beginning of october, just a couple of weeks ago, it was 25.6%.
and today, it's 0.7%. and that's the sharpest drop we've seen, and it's because of the sharp decrease in the price of commodity prices. >> reporter: that's far from the only factor hurting profits. there are also the troubles in europe, where s&p 500 firms get roughly 14% of their revenues. >> companies such as nike, alcoa, carnival, even g.e. have all cited in their q3 press releases that there toughest global region was europe. they just weren't seeing growth there. >> reporter: but let's look on the bright side-- if fourth quarter profits are up 10% or more, it would be the ninth straight quarter of double-digit earnings growth. unfortunately, there isn't expected to be another double- digit quarter till the end of next year. erika miller, "nightly business report," new york. >> susie: more fallout tonight from the collapse of mf global. federal regulators have ordered a review of all u.s. futures trading firms after hundreds of millions of dollars in client funds went missing from
mf global. the commodity futures trading commission wants to make sure firms are keeping their money separate from customers' money. in the aftermath of mf global's bankruptcy filing, roughly $600 million in customer funds are still missing. a veteran of the futures industry tells diane eastabrook he thinks the scandal will result in more regulation for his industry. >> reporter: russel wasendorf is a 35-year veteran of the sometimes high stakes game of futures trading. pfg best, the futures trading firm that he founded, handles more than a half-billion dollars in customer accounts. wasendorf sat down in his chicago office to talk about the collapse of mf global. he says he was stunned the company invested so heavily in european sovereign debt, something he says pfg best doesn't do. wasendorf doesn't think the think current regulatory system failed mf global customers, and he's confident it will find the $600 million missing from the firm's customer accounts. >> every single day, an fcm must
file a segregated report. friday prior to this event, everything is fine, and monday, the bells went off. so something happened during that interim time period. the futures regulations work just fine, but once the money was transferred-- at least this is my theory-- once the money was transferred, it went into another regulatory environment with new rules, probably banking rules, that supercede the regulations of the futures industry. now that new regulation is holding the funds, and it's a matter of time before it gets released back. >> reporter: what sort of response have you gotten from your customers since this happened? >> the typical futures customer i think understands how well the regulations work. where multiple regulators are involved with their own procedures, then the futures customer becomes very, very frustrated.
regulations in the futures industry are very direct, very simple, and very effective. >> reporter: do you think we're likely to see more regulation? >> certainly with the current legislative group that we have, the current administration that we have, yeah, we're going to see revenge regulation. we're going to see a lot more regulation, meaningless regulation, but a lot more of it. >> reporter: is this likely to be a black eye for the futures industry? >> well, it's certainly a black eye for the futures industry. what i think is important to see if we do see a recovery from this, and people come to this industry with a new attitude, then it's ultimately positive. i guess i'm the guy who looks for the silver lining in every black cloud, and i really think that something good is going to come out of this, that we are going to have a better
environment for investors, even though the environment for investors prior to this was exceptionally good. >> reporter: mr. wasendorf, thanks very much for joining us. >> thank you. >> susie: tom, what's on tap in tonight's market focus? not as ugly as yesterday with all the volatility, but good news about the u.s. economy and a lot of good news about europe that we reported at the top of the program. >> tom: really trying to balance those two things and we saw kind of a calmer trade today-- not quite as volatile but, clearly, the market volatility still remains here, susie. let's go ahead and get to it with this evening's market focus. it was a choppy session for u.s. stocks, as the markets react to the headlines out of europe and the better weekly jobs numbers from the u.s. let's put the recent volatility in perspective. here are the past 30 sessions for the dow jones industrial average. after a sharp rally in october, the buying has stalled out with
uncertainty growing out of europe. energy and healthcare took the lead today in a more muted market. the energy sector was up less than 2%. health care gained less than 1.5%. for energy, the independent oil and natural gas firms continue to see activity. cabot oil and gas, pioneer natural resources, and newfield exploration each gained at least 5.5%. the energy stock rally was underpinned by the continued rally in crude oil. crude climbed almost $2 today to over $97 per barrel, it's highest price since august. in healthcare, a first for merck in almost a decade. shareholders will get paid a little more to hold the stock. the drug giant boosted its dividend for the first time in seven years. the last dividend hike was before merck pulled painkiller vioxx off the market.
shareholders will now collect 42 cents per share per quarter; that's up from 38 cents a quarter. the dividend boost certainly boosted merck stock. shares jumped more than 3%. volume was strong with the stock moving up close to its october high. the house of the mouse delivered better than expected earnings after the close tonight. walt disney beat estimates by four cents per share. it's tv and theme park businesses continue to show strong results, and those were joined by its film business last quarter, thanks to movies "the help" and "the lion king 3d." disney stock had buyers ahead of the news, up 2.5 % during the regular session. the stock added almost another 3% after the close. if that buying holds through tomorrow, it would take the stock over $35.50 per share. fellow media company viacom popped 8%. volume almost tripled on this move after its quarterly
earnings were better than anticipated. also adding to the buying interest is the company more than doubling its own stock buyback plan. also after the close, semiconductor maker nvidia turned in earnings three cents over estimates, and a huge gain compared to a year ago. profits almost doubled versus last year as the company has seen strong business from its traditional graphics chips and its newer smart phone business. what was a 1% gain during the regular session saw another 4% pop after the close. nvidia has had a wild ride this- - after rocketing from $15 to $25 at the beginning of the year, shares have been unable to stay above $15 since july. tonight's after-market buying saw trading back over $15. a couple of big reactions today from last night's earnings. cisco was the best dow
industrial stock with its almost 6% gain. it had an upbeat outlook helping today's buying. green mountain coffee, meantime, lost more than a third of its value, down 39% after a disappointing quarter. and that's tonight's "market focus." >> susie: plans for a controversial pipeline that would carry oil from canada to texas are on hold. the state department wants canadian firm trans-canada to study alternate routes that
would take the pipeline away from environmentally sensitive areas in nebraska. that review is likely to take at least a year. the price tag on the 1,700-mile pipeline is $7 billion. >> tom: it has been three years since the credit crisis brought the american financial system to a halt. since then, we have seen new regulations, new scandals, and new worries. how much has really changed? michael mayo is managing director and author of the new book, exile on wall street. one analyst's fight to save the big banks from themselves. welcome to "nightly business report." and congratulations on the book. >> thank you. >> tom: it the is the threat posed by what we're seeing today with the european debt going back bigger than the credit crisis of three years ago? >> oh, my. the issue is we have too much debt in western economies. debt's grown twice as fast as g.d.p. for the last deck expead now you're paying the price for that. so i think it's different than the lehman and big crisis of
2007-2008 because it's likely to last longer. though, we sure are seeing the brunt of that right now. >> tom: it's different because the buyer of last reswrortz, in this case the governments themselves, that are in trouble that are impacting the banks. can the banks withstand the kind of trouble europe may have to deliver? >> i'm looking at the u.s. banks. when europe sneezes, the u.s. can catch cold so you're seethe whole risk-off disprad that impacts the capital markets, the stock market, the pace of investment by corporations and consumers, so you really have a loss of confidence, a domino effect glowm contend that the financial crisis hasn't changed a thing. we did see a financial firm go bust in recent weeks, m.f. glocialg eighth largest bankruptcy in u.s. history. the market absorbed it. hasn't the market gotten used to this risk? >> you're right, m.f. global, taxpayer money wasn't used. failure is part of capitalism. that part is fine.
but just like i read about-- write about in "exile on"" you can considerv many eyes on the market providing checks and boston polices on the system and a lot ofize the market didn't do the job just like they didn't do the job over the last decade, whether accountantes, regulating agencies and others. i would like markets to do their jobs, and markets still aren't doing their jobs. the conclusion of m.f. global and the conclusion of my book is capitalism didn't cause the crisis. a lack of capitalism is what caused the crisis, and that means better transparency, and more skin in the game for the top dogs in these companies and that wasn't the case here, either. >> tom: in fact, you go so far as you say the credit crisis in 2007 and 8 wasn't because of something the banks did-- namely, overextend themselves-- but instead you write in the book, "a natural consequence of the way banks are, even today." so is there no way to stop or even contain a future crisis? >> well, that's exactly why i wrote the book.
after all i've seen in 25 years, not just during the crisis and not just before the crisis but what still takes place in 2011. and the cure is to get the incentive where's they need to be. in my book, i talk about a., b., c.perform a. for accounting. let's get the numbers right. b., bankruptcy, let's allow the firms to fail, and c., let's give more clout back to shareholders. there need to be solutions that should have been in place a couple of crises ago. >> tom: you're still out there analyzing bank .gz any best in breed u.s. banks that you like the stock of today? >> well, you are swimming upstream. i think the u.s. is a lighter version of what's taking place in japan. you have the european situation. but i think the safest of the four biggest bank right flow is wells fargo so we're most comfortable with that. >> tom: do you own any wells fargo yourself, mike? >> i don't owe any personally. >> tom:s michael mayo, nice to catch up with you.
>> tom: here's what we're watching for tomorrow: it's veteran's day. government offices, banks, and the bond markets are closed. also tomorrow, eugene peroni of advisor's asset management is back as our market monitor. he says the technical characteristics of the stock market are improving gradually, but you may not notice because of the wild swings every day. walmart has upped the ante on black friday shopping-- it's now opening at 10:00 pm on thanksgiving. this rolls back the time for consumers to get a jump on holiday sales. that's two hours earlier than rivals target and best buy. walmart will offer deals on toys, home items, and clothing at 10:00, followed by electronics sales at midnight. >> tom: coffee and tea are not enough for starbucks. the coffee giant announced today it has purchased premium juice evolution fresh. the price tag was $30 million. starbucks also will roll out evolution fresh products at its own stores and through newer retail outlets.
>> susie: you can keep up with nbr anytime. we're online at nbronpbs.org. there you'll find all the market data from the program. and you can follow us on twitter @bizrpt, or my personal feed, @sgharibnbr. we're also on facebook at bizrpt. recent reports say the rich got a lot richer over the last three decades. but tonight's commentator thinks there's a lot more to it. he's tim kane, research fellow at the kauffman foundation. >> i find myself reading two things this week-- the excellent biography of steve jobs, and also the report from the congressional budget office comparing u.s. income inequality over the last 30 years. there is a heavy emphasis in the report on the "top 1%", but i am bothered by a simple question-- was steve jobs, founder of apple computer, in the top 1%? estimates are that jobs had a
net wealth of $6.7 billion, even though his income was just a single dollar in 2010. what about 1979? he was adopted into a blue collar family. apple wasn't formed until january 1977. in 1979, they had not yet launched the macintosh, nor had apple gone public. here's the problem with the cbo. the very first line in their summary says something untrue. the report claims the top 1% of households saw their incomes grow by 275% between 1979 and 2007. not true. what is true is the highest income households in 1979 were rich, but they were not as rich as the highest income households in 2007. of course, they were different households. neglecting income mobility, immigration, or the fact that income measures do not include intangibles-- things like cancer cures-- means cbo's report was just inflammatory. we don't resent tom hanks for his millions, or mark
zuckerberg, or new brain surgeons. they are the ones making a dent in the universe. i'm tim kane. >> tom: as you go shopping for thanksgiving, it will cost more this year. the price of a formal meal for ten people with all the trimmings will jump 13% to just under $50. that's the biggest gain in two decades, according to the american farm bureau federation. turkey was the most expensive and had the biggest gain. a 16-pound bird jumped 22% to $21.57. stuffing mix, cranberries and sweet potatoes also cost more. still, susie, the farm bureau says a dinner for ten people at under $5 a head is still a bargain. >> susie: two weeks away for thanksgiving. my favorite holiday. >> tom: time to stock up now. >> susie: that's "nightly business report" for thursday, november 10. i'm susie gharib. good night, everyone, and good night to you, too, tom.
>> tom: good night, susie. i'm tom hudson. good night, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >> be more. pb] ♪ >> good morning, sir.